There could be gold in them thar city classrooms

Staring at a £13m deficit, Hackney council is desperate to balance the books - and that means knocking down the caretaker's house, cutting clothing grants, perhaps even selling improving schools

The letter came as something of a shock. Governors at the Sir Thomas Abney Primary School in Hackney wanted to get their crumbling caretaker's house repaired, but it had never remotely crossed their minds to go into property development.

The letter came as something of a shock. Governors at the Sir Thomas Abney Primary School in Hackney wanted to get their crumbling caretaker's house repaired, but it had never remotely crossed their minds to go into property development.

Maybe the school could knock down the house and build another two or three on the site, the letter from the local council's estates department suggested brightly. Then it could keep one for the caretaker and sell the others to finance the project. Or, then again, perhaps it could build new accommodation on another piece of land and sell the existing house to a developer.

"Our reaction was one of confusion, really," says one governor, who does not want to be named. "It was a strange suggestion. Of course, it would be wonderful if we could have the land to do what we wanted, but we couldn't see that happening. And we didn't know who would keep any surplus we made."

So why was the suggestion made? In many ways, the letter to the Sir Thomas Abney governors exemplifies the mire which the beleaguered local council in one of the most deprived areas of Europe is in - and the measures it is having to consider in order to climb out.

The letter appears to be part of a pattern. Sir Thomas Abney Primary is one of a number of local schools and nurseries in Hackney facing plans for closure, land sell-offs or building schemes as the ailing borough tries to solve desperate financial problems with the help of rising property prices. Liberal Democrat councillors in Hackney, which is run by a Labour-Tory coalition, are accusing the council of "asset-stripping". Councillors have been told, for example, that land attached to the De Beauvoir Primary School in the south of the borough could be sold for £2.8m. Of that, £900,000 would be used for repairs to the school, leaving a surplus of £1.9m for the borough. Whitmore School, near the Islington border, has also identified a piece of land for potential sale.

Burbage Primary School in Shoreditch (see box on page 9), in special measures for the past two years, is now threatened with closure despite marked improvements in its SAT results. If the plan goes ahead, its site, within striking distance of the Square Mile, could be sold for around £5m.

At the Atherden Day Nursery in Clapton, plans for closure have been delayed after parents took legal action, claiming the council had failed to consult them properly. But it is still rumoured that all or part of the site may be sold. Another nursery, Bib and Braces, closed recently, leaving its council-owned site empty and ripe for a sell-off.

The Thomas Abney governors are waiting for more information from Hackney, but it is not clear whether they could even legally do what the council has suggested. The land belongs not to the school, but to the borough; and it probably could not be sold for residential development because it seems to be covenanted for educational use.

There is a real need for the council to raise money. Although the education department's budget has been reasonably well managed, the borough of Hackney as a whole is on course to produce a £13m deficit this year, according to investigations carried out by The Independent. Everything has to be investigated for its cash-raising potential or its suitability for an expenditure cut. Even the budget for school-clothing grants, available to the poorest pupils, is being cut by £70,000.

Since last year, private contractors have been running Hackney's school-improvement and ethnic-minority services - sent in by the Government. This month, both Ofsted and the Audit Commission will be in the borough to assess the progress since the private contractors came in. If the council is found wanting, as it was on Ofsted's previous visits, further sections of its staff could face "outsourcing", even though The Independent's investigations have revealed that there has been some progress in turning around failing schools. But while some exam results have improved - the proportion of pupils gaining five or more high grades at GCSE has risen by five percentage points to 32 per cent in the past two years - others have declined. Hackney's 11-year-olds are still falling further behind their "statistical neighbours" in English and maths tests.

The poor results combined with financial concerns are not the borough's only worry. Documents leaked to The Independent show that Max Caller, the borough's new managing director, and Elizabeth Reid, its director of education, are at loggerheads over a planned re-organisation. They agree, though, that Hackney is still in serious trouble. Ironically, their exchange of memos reveals they are at one on a particular problem: that the borough's staff have failed to work well together.

In a note to councillors this summer, Mr Caller wrote: "I made it clear... that the organisation as a whole is dysfunctional and that there is little apparent corporate teamwork. We cannot go on like this... We must have a financial system which stretches from top to bottom of this organisation. If this is not accepted, there is no future for Hackney being in control of its own destiny... Hackney is in a parlous state."

In a paper opposing Mr Caller's re-organisation plans, Ms Reid accepts that Hackney "remains vulnerable to government intervention in the provision of its education services". "Joined-up thinking" in Hackney had been fractured by the splitting up of the education department, she wrote. And she was withering about the part of Mr Caller's plan that concerned finance, describing it as "essentially that which failed in the past, was the subject of severe Ofsted criticism and raised the serious possibility of outsourcing".

Ms Reid is now working her notice. She resigned after Mr Caller ignored her protests and pressed ahead with his plans. "Joined-up thinking" is certainly still a problem. One beleaguered school caretaker had to go to court recently after being sued by the council for not paying his council tax, which was supposed to be deducted at source from his salary - by the council.

Nord Anglia, the company brought in to turn round the borough's six failing schools - now down to three - has also found the atmosphere fractious. Its consultants, who took over less than one-tenth of Hackney's total staff, found their new colleagues to be demoralised and demotivated.

Several members of the former Hackney school-improvement team left, and sources close to Nord Anglia said last week that they were now hopeful of making progress. But they admitted that the best part of a year had been wasted - a third of their three year, £1.3m contract.

School staff who attended meetings with Nord Anglia and Hackney officials found them barely on speaking terms, though reports of public shouting-matches were said to be exaggerated. Nord Anglia consultants also had several stand-offs with Ms Reid.

Despite those difficulties, struggling schools that have dealt with Nord Anglia recently say they have found its operatives a breath of fresh air after years of dealing with the constantly changing personnel on Hackney's school improvement team.

Richard Thompson is chairman of the governors at Kingsland, a mixed secondary school in "special measures" since failing an Ofsted inspection. He feels that his school has received excellent back-up in the past year. "It has been a lot better than we had ever received before. If we had received that advice and support at an earlier stage, we might not be where we are now," he says.

Kingsland, like many of Hackney's other schools, has serious problems with its buildings. But Mr Thompson rejects the Liberal Democrat suggestion that the school should be moved on to the site of the old Hackney Downs, which was shut in 1995 when a government hit squad found it was irretrievable after a failed Ofsted inspection. The Hackney Downs site cannot be sold for development because it is covenanted for educational use, as appears to be the case with Thomas Abney. Meanwhile, the council continues to spend tens of thousands of pounds each year on keeping it safe.

Hackney Council declined to offer a council official or politician for comment, but Meral Ece, the Liberal Democrat group deputy leader and a member of the borough's education committee, said it was "heartbreaking" to see a school such as Burbage threatened with closure when staff and governors had worked hard to turn it round: "The borough needs to realise capital receipts to deal with its deficit. But it's different here from the counties, where schools may have vast playing fields. We are talking about pieces of tarmac in an area where children already have too few green places to play in," she said.

She also fears that the current round of inspections may mean more privatisation and less local democracy. The latest rumours suggest that Hackney will be found failing and Nord Anglia will pull out to make way for a full-scale takeover by Cambridge EducationAssociates, which already runs neighbouring Islington. Ms Ece doubts such a move would be good for the borough. Councillors have been denied some details of Nord Anglia's contract on grounds of commercial confidentiality, she says, and further commercialisation can lead only to more secrecy.

"If they were talking about rubbish collection, we would be allowed to ask questions to make sure the council was getting good value for money," she says. "Why should education be different?"